Business owners have a range of finance options, when purchasing new vehicles. You should always seek financial advice from your accountant or tax agent before making a decision on what is best for your business circumstances.

BUSINESS CAR FINANCE OPTIONS

HIRE PURCHASE
Hire Purchase is a rental agreement, but differs from Finance Lease in that the goods automatically become yours once all terms of the agreement have been completed. Ownership of the goods rests with the financier until the final payment is made, however, for tax purposes you can claim depreciation and interest paid, against your business income.

A Hire Purchase agreement also gives you the option of including an upfront deposit or trade-in to reduce your monthly finance commitment, while a balloon payment may also be set at the end of the term (much like a lease residual) to acknowledge the equipment’s end value. Alternatively, you may choose to structure your repayments to clear the debt in full over the term of the contract.

CHATTEL MORTGAGE
A Chattel Mortgage allows businesses or those self employed who operate under a “Cash Accounting” basis to claim the full input tax credit from GST incurred expenses immediately. A Chattel Mortgage can be structured to suit the individual needs to each applicant.  Like Hire Purchase, you can claim depreciation and interest paid, against your business income.

LEASE
Finance Lease is a form of rental agreement under which you lease your nominated asset for an agreed term and rental amount. A residual value is set to reflect the equipment’s value at the end of the term.

The goods are owned by the financier, but the lease rentals are tax deductible to you, as long as the goods are used in connection with producing assessable income.

At the end of the lease, you can payout the residual value to own the goods, trade-in the goods for a replacement loan or extend the lease for a further term.

COMPANY CARS & NOVATED LEASE
In recent years, Novated Leases have become a popular alternative for businesses wishing to provide their employees with motor vehicles. A Novated Lease is effectively an agreement between the employee (a leesee), their employer and the finance company (the lessor).

It operates by creating a Finance Lease Agreement between the employee and the financier. A Novation Agreement is then entered between all parties, which tranfers responsibility for the lease rental commitment to the employer during the lessee’s period of employment. On the employee leaving employment, the novation ends, with ongoing responsibility for the lease returning to the employee. Benefits to both businesses and employee’s are as follows;

• Potential to remove the vehicle from your balance sheet
• Eliminating administration and maintenance costs involved in managing a fleet
• The ability to negotiate payment of vehicle running costs with your employees
• Freedom for your employees to choose their motor vehicles while enjoying the benefits of a company car
• No on-going company responsibility for the vehicle should an employee leave.